The Father of Free Markets Is Not Who You Think

by Nicholas Vardy
Father_Free_Market_Illustration

Editor’s Note: If you’ve kept up with your Investment U emails over the past few days, you’re aware that big changes are coming to your subscription.

But that’s really all I’ve told you. (And if you haven’t opened your emails lately, now’s a great time to do a quick skim!)

I promise to provide more details next week after Memorial Day. But for now, are you ready for a little game of Clue?

Pay close attention to the themes in today’s article by Nicholas.

Two key words should stand out... and will summarize our evolving brand and mission.

Can you guess which they are? Leave a comment below...

And let’s see who comes closest. Heck, you might even get a shout out in my next note!

Donna DiVenuto-Ball, Managing Editor


“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”

- John Maynard Keynes

I first picked up Friedrich Hayek’s The Road to Serfdom in college.

I still remember how instantly compelling I found his insights.

Economically, Hayek argued that Soviet-style central planning didn’t work.

Politically, he pointed out that collectivism - whether pursued by the “right” in Nazi Germany or the “left” in the Soviet Union - led inevitably to tyranny.

Morally, Hayek noted even well-intentioned social policies gave government bureaucracies too much power, ultimately oppressing their citizens’ freedom and liberty.

When I shared my enthusiasm for Hayek’s ideas in my seminars, the intense blowback from my professors perplexed me.

Naively, I was unaware that Hayek had become an icon of the political right...

And that both Margaret Thatcher and Ronald Reagan had often cited Hayek as inspiration for their policies.

The irony is that Hayek’s intellectual stock has skyrocketed since then.

The evidence?

Following the debates surrounding the financial bailouts of 2008, The Road to Serfdom became the No. 1 best-seller on Amazon in June 2010.

Hayek’s ideas are as relevant today as they have ever been.

It’s ironic that an Austrian-born economist’s focus on limited government, free markets and liberty reflects so well the basic instincts of many Americans today.

Who Was Friedrich Hayek?

Hayek was born into an academic family in the Austro-Hungarian Empire in 1899.

He earned his academic stripes by completing two doctorates at the University of Vienna in the 1920s.

In 1931, Hayek was plucked from the bush leagues of Austrian academia to fill a prestigious chair at the London School of Economics.

Hayek promptly positioned himself as a rival to the English economist John Maynard Keynes at Cambridge.

Hayek’s clash with Keynes focused on the role of the government in managing the Great Depression.

With the publication of Keynes’ TheGeneral Theory of Employment, Interest and Money in 1936, Hayek lost the debate.

I believe Hayek’s loss was due as much to style as to substance.

Keynes was flamboyant, quotable and brilliant. He was also the ultimate insider.

In contrast, Hayek was cerebral, rambling and nerdy. He was an outsider with a strange accent.

Hayek’s Major Contributions

Hayek received the Nobel Prize in economics in 1974 for his technical work on the credit-driven boom-bust cycles of economies.

For many economists, winning a Nobel Prize represents the pinnacle of achievement.

Not so for Hayek.

Hayek was exceptionally learned. He made significant contributions not only to economics but to political philosophy and psychology as well.

1. Hayek the Economist

For much of the 1930s, the global economy was mired in the Great Depression.

Keynes argued that increased government spending was the key to getting economies back on track. Hayek countered that a government spending money for its own sake was merely wasteful. Moreover, throwing fuel on the fire by printing money just postponed the painful adjustments needed to heal the economy.

Hayek's solution? Let things work themselves out rather than print money to paper over what ails the economy.

You see echoes of the Keynes-Hayek debate in today's financial press every day.

2. Hayek the Political Philosopher

Hayek wrote The Road to Serfdom as a warning to postwar Western governments about the perils of collectivism.

In the eyes of academics, however, the popularity of The Road to Serfdom sealed Hayek's fate as a non-economist.

The University of Chicago was a stronghold of free market economics. Yet even it refused to give Hayek a post in economics in 1950, exiling him instead to its newly created "Committee on Social Thought."

Hayek fleshed out his thoughts in The Constitution of Liberty. In this 20th-century restatement of the principles of liberal constitutionalism, Hayek argued that liberty was the key to wealth.

3. Hayek the Psychologist

Throughout his life, Hayek emphasized the limits of human knowledge.

None of us is very smart alone. My knowledge is minuscule - as is yours.

All information is dispersed across the economy. That's why business owners will always know better what's right for them than any government bureaucrat armed with a plan.

In Hayek's mind, concrete street smarts trounced abstract book smarts any day.

Why Hayek Matters

The mainstream economics profession has done its best to marginalize Hayek.

My college economics textbook failed to even include Hayek’s name in the index.

Yet Hayek’s ideas play a crucial role in today’s world.

That’s because Hayek acts as a counterweight to the almost uniformly socialist tendencies among academics.

And Hayek’s ideas have impacted the world far beyond the ivory tower.

Ronald Reagan cited Hayek as one of his favorite thinkers. Milton Freidman even credited Hayek’s ideas for the collapse of the Soviet Union.

So let me leave you with my favorite Hayek anecdote.

In 1975, an advisor tried to convince future prime minister Margaret Thatcher that the Conservative Party should avoid the extremes of left and right.

Thatcher interrupted him, reached into her briefcase and took out a copy of The Constitution of Liberty and said, “This is what we believe!” and slammed Hayek’s book down on the table, ending the debate.

His ideas thus inspired the United Kingdom's abandonment of its socialism of the '70s.

Hayek’s greatest legacy is the impact of his ideas across the world, from Chicago to London and beyond.

I’ll be exploring more of his ideas on liberty and wealth in the weeks to come.

Good investing,

Nicholas

This News Is NOT Fake

Of all the freedoms we as Americans hold dear, the First Amendment is probably the most revered. It protects our rights - without fear of repercussion - of speech, assembly, religion and the press.

Although we may not always agree with the bias of the press, most of us agree it's better they have a platform than not. That's why Marc Lichtenfeld recently added Meredith Corp. (NYSE: MDP) to the Oxford Income Letter's Compound Income Portfolio. Here's why, despite the flailing industry, Meredith might just escape a death warrant...

It's widely known that newspapers and magazines are dying. As with shopping malls and department stores, print media is being displaced by the internet.

But a few companies are doing an excellent job adapting to the new digital age. Not only are their businesses surviving... they're thriving.

Meredith Corp. (NYSE: MDP) is one of them.

Meredith closed its acquisition of Time Inc. in January of this year.

With Time, Meredith is now a top media platform company. Its digital and print offerings reach 175 million readers, including 80% of millennial women.

Two weeks ago, Meredith released its third quarter earnings report.

The company reported a $95 million loss from continuing operations and a net loss of $110 million.

Management attributed the loss to $170 million of special pretax items it recorded for the cost of the Time acquisition.

Revenues from continuing operations - including two months of Time revenue - totaled $649 million.

Meredith also provided an update on the progress it has made since the acquisition. The good news is that the company has gotten a head start on many of its planned initiatives.

Management said cost savings and synergies would be higher than the $400 million to $500 million that was expected. And it reiterated its plan to deliver $1 billion of debt reduction in fiscal 2019 and generate $1 billion of EBITDA (earnings before interest, taxes, depreciation and amortization) in fiscal 2020.

The deal should be a big win for the company. Revenue should double from $1.7 billion in 2017 to $3.6 billion in 2019.

Free cash flow is also expected to double with revenue. It should rise from $185 million in 2017 to $420 million in 2019. That's great news for dividend investors.

Meredith has consecutively raised its dividend for 25 years and has been paying one for 71 years.

Integration of Time is ahead of schedule. The company is continuing to improve and grow its brands.

Wall Street hasn't given the company credit for its success yet. So you have the opportunity to scoop up shares sporting an attractive 4.2% dividend yield.

If you don't own Meredith yet, consider adding it to your Compound Income Portfolio today.

- Donna DiVenuto-Ball with Kristin Orman (for Marc Lichtenfeld)

Live Twitter Feed